ED MONK: David Cameron is claiming a victory over energy prices - but has he delivered on his promise?

Prime Minister David Cameron told MPs on 17 October that he would ensure customers got the best price - but do his changes do that?

A triumphant David Cameron today tweeted:
'My promise to ensure energy customers get the lowest tariff is being
delivered, despite Labour saying it couldn’t be done.'

But has he actually delivered on that promise?

Under plans launched by the Department for Energy and Climate Change (DECC), each supplier will be restricted to only four tariffs for electricity and four for gas.

They will have to offer a 'standard variable' tariff and a fixed term, fixed price deal. They can also offer two other tariffs that are targeted in different ways - the DECC gave the example of a tariff for renewable energy.

The new rules require that customers be moved onto one of the four tariffs, and that customers on each must get the same price.

Any customers that are on dozens of less competitive, outdated deals, will get moved to the best available for the particular tariff they are on.

The changes are based on reforms put forward by regulator Ofgem last month. It too had recommended limiting deals to four simplified tariffs.

But the Government is claiming that its reforms today go even further. It says they also reflect a pledge made by David Cameron in Prime Minister's Questions on 17 October to legislate 'so that energy companies have to give the lowest tariff to their customers'.

That promise caused chaos at the time. It seemed to go beyond the Ofgem proposals that the DECC and new energy minister Ed Davey were sticking to and energy companies insisted they knew nothing of the Prime Minister's plan.

A requirement for suppliers to 'give the lowest tariff to their customers' would mean the end of companies offering better prices to those who seek them out through online price comparisons.

The benefit of such a change would not be that prices are forced lower - the lowest prices would subsequently rise if they were offered to everyone - but rather that a supplier would have to cut prices for all its customers if it wanted to compete.

Currently, companies are able to use these online tariffs to tempt new customers with lower prices, while the majority of customers languish on 'standard tariffs' that are more expensive and for which there is less incentive for suppliers to compete on price.

These customers have shown they are reluctant to switch, so suppliers can keep their prices higher while they sweep up news customers with better deals. It is the kind of 'predatory pricing' that former energy secretary Chris Huhne promised the Lib Dem conference would be tackled.

The PM's words last month raised hopes that this flaw in the market would be corrected and suppliers would have to compete on price for all customers, not just internet-savvy ones that know where to find the best deals.

A spokesman quoted at the time of the Prime Minister's announcement said: 'People are encouraged to switch but many people don't. It is only a minority of people who switch, so lots of people are not benefiting from that market, particularly vulnerable people who are less likely to switch deals.'

If the intention of the changes today was to ensure those vulnerable customers benefit from the switching market, they have failed.

There is nothing in the new rules forcing suppliers to remove cheaper deals where new customers apply online. They can simply offer an online deal as one of the four tariff options and make this cheaper.

If a customer is already on such a deal they will continue to benefit - but the far greater number of 'standard tariff' customers will simply be shifted to a new 'standard variable' rate that is still more expensive.

Overall, these changes are positive as they will remove some of the complexity faced by customers and give them better information about the benefits of switching.